COMMODITY TIPS US DOLLAR STRANGLES GOLD
Indian gold spot premiums have jumped to a two year high as jewelers and
investors have flocked to the yellow metal in order to park higher
denomination currency notes (Rs 500 & Rs 1,000) before it completely
goes out of circulation.
Gold treaded water around US $ 1,200/oz, as intensified
strength in US dollar made the gold bugs gasp for breath. The outcome of
US elections has simply changed the equation, where market participants
are now simply pricing an inflationary scenario in the US and a hawkish
Fed due to potential massive tax cuts and US $1 trillion government spending on infrastructure by newly elected President Donald Trump.
Nevertheless, in the physical markets, Indian gold spot premiums have
jumped to a two year high as jewelers and investors have flocked to the
yellow metal in order to park higher denomination currency notes (Rs 500
& Rs 1,000) before it completely goes out of circulation from the
informal economy as well after December 30th.
Moreover, speculation is rife that Indian government
may impose stringent restrictions on gold imports. On the price front,
the near term outlook for gold prices seems to be uninspiring, with
strong US dollar posing as a substantial headwind. US $ 1,190/oz is
considered to be a support, the level from which gold prices witnessed a
breakout during February this year.
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